Analyst Co-Coverage Weighted Momentum
factor.formula
Analysts’ common coverage weighted momentum factor $CS_{it}$:
in:
- :
is the number of stocks i and j covered by the same analysts in the same period of time. This value reflects the closeness of the information relationship between stocks i and j.
- :
The cumulative return of stock j over the past 20 trading days (approximately one month). This return serves as a momentum indicator to measure the recent performance of stock j.
- :
is the total number of all stocks in the stock pool. This parameter limits the range of stocks considered during factor calculation.
factor.explanation
This factor is based on the following logic: analyst co-coverage is an important source of momentum spillover effects. When multiple companies are economically related (for example, they belong to the same industry, are in the same upstream and downstream of the same industrial chain, have supply chain relationships, or are geographically close), or have similarities in fundamentals, analysts' research reports will generate information spillovers between these companies. If investors underreact to relevant information about one of the companies, this underreaction may be transmitted to other related companies through the network of analyst co-coverage. Therefore, companies covered by the same group of analysts often have mutual influences, thus showing predictability of returns. This factor can capture this cross-company momentum effect driven by analyst co-coverage relationships, and provide supplements and explanations for the correlation momentum factors constructed by other correlation relationships (such as industry, industrial chain, supply chain, region, etc.).